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Sugar scandals in Zimbabwe’s lowveld

While visiting our research sites in Mkwasine and Hippo Valley in Zimbabwe’s lowveld recently, there was only one topic of conversation among sugar farmers we have been working with in land reform areas: the scandal that has overwhelmed the South African sugar firm, Tongaat Hullett.

A forensic audit by Price Waterhouse Cooper (PwC) uncovered massive accounting irregularities and the report named most of the top brass of the company, including the top team in Zimbabwe. What’s more, the accounting audit identified land acquired for land reform as an asset that shouldn’t be on the books, immediately wiping billions of Rand off the company’s value.

This episode has sent shock-waves through South Africa’s corporate sector. The company was delisted from the Johannesburg stock exchange, all those implicated have been removed from their posts, and there are potentially criminal charges pending. Not surprisingly, big questions are being asked about the companies that previously audited Tongaat’s accounts.

Sugar deals: alliances between state and capital

Tongaat Hullett is the owner of Triangle estates and mill and the major stakeholder in Hippo Valley, having bought out Anglo-American’s shares. A total of 640,000 tonnes of sugar can be produced per year from two mills. Since the late 1950s, this has been a strategic contribution to the national economy. Ever since the sugar industry was first established in the lowveld with 100 hectares planted by Murray McDougall in 1937, the companies involved – first MacDougall’s Triangle company, then the Hullett company from 1957 then conglomerate, Tongaat Hullett, later – have been a central part of the lowveld political economy. In the estate museum there are pictures of company executives and colonial governors, prime ministers or presidents from the early colonial era to the present. The state indeed invested substantially in the sugar industry – building dams, creating canals, levelling fields and offering land. The state and sugar capital have always been intimately intertwined in Zimbabwe (see the brief history in our open-access JSAS paper).

This was certainly the case during land reform when deals were struck to protect the core estates from land invasions. Concessions were offered and the white and Mauritian outgrowers were expelled in favour of new A2 farmers, but the main business was protected. By all accounts this was agreed at the highest political level. Since then the company has been cajoled into make further concessions, releasing cane land for those local invaders who felt that they had lost out in the early 2000s, and again recently a major new initiative has been started, opening up new land for outgrower cane, and the settlement of more people.

When we started our work in the sugar growing areas in the early 2000s, soon after land reform, the company executives were dismissive of the resettled farmers. How could they possibly grow cane at the level and quality that the estate does? As our work has shown, they have been surprised. Yield levels are comparable to the estate and the outgrower sector is delivering a significant proportion of the cane. With risk transferred to outgrowers and the company acting as a monopoly buyer, this has worked out well for the estate.

But farmers and the company have not always got along well. The company has monopoly market power and sets the terms (even if these are quite good by regional standards), and the exposure of the level of dodgy accounting by PwC has only acted to enrage farmers. For them, this proves that they are being ripped off, and that the company fat cats are benefiting, while they suffer. Growing sugar is hard, and made harder, especially for those in Mkwasine area operating outside the estate, as water and electricity supply is challenging, given the decline in infrastructure. For them, not only the company, but the state – always seen to be in cahoots – are to blame for their plight.

Plantation life and empire economics

Sugar plantations have always been central to the economics of empire. Linked in some parts of the world to slavery, land expropriation and exploitation, sugar, global capital and colonial states are intimately entwined, as Sydney Mintz has so eloquently written about in Sweetness and Power. Yet plantations also have connotations of modernity and progress, creating order and wealth in marginal areas, and with this gainful employment and an export commodity that boosts national economies.

Being in the lowveld sugar areas you can feel this. The emerald green sugar cane is laid out in neat blocks, and the busy efficiency of the tractors, haulage trucks and mills give a sense of unified purpose. The massive engineering works that have gone into ensuring continuous supplies of water to this otherwise dry land are witness to state commitment, with canals criss-crossing the landscape, and the area dotted with sluices, check-dams and ponds. Meanwhile, the country clubs, the golf courses, the manicured village greens, the cricket creases, the football teams and the schools named after sugar heroes of the lowveld, present a sense of another world, beyond the mayhem of contemporary Zimbabwe. The massive Tongaat billboards on the roads welcome you to an almost sovereign space, beyond the nation, with its own rules and security forces.

Plantation life is often a separate existence, where you are provided for; as long as you commit to the deal with the company you can be housed, educated, medically cared for and provided with a job. The remuneration may be poor and conditions bad, but there is not much else among the dry baobabs of the lowveld.

The outgrowers, begrudging and forever complaining, have by-and-large accepted this incorporation into this company world. Many have done well from sugar, faring considerably better than their counterparts on other A2 farms, and with better deals than other sugar producers in the region (see our JSAS special issue on the political economy of sugar in southern Africa). Learning the ways of sugar, and its seasonal cycles, has taken some doing, and many have diversified to avoid total reliance on one commodity, but our data show significant levels of income from most. And this is much more than the pathetically remunerated government jobs that many retired from.

Yet the accounting scandal has upset this accommodation. People are angry at being ripped off. And dodgy accounting is resurfacing resentments around land politics. Noone is very clear about who actually owns the land that sugar wealth is built on. For land reform areas it is clearly state land as it was expropriated, but the estate as whole does not have clear land titles. It was always an accepted arrangement that the estate provided a strategic industry, valued and supported by the state, and lowveld land was cheap and plentiful. But forensic accounting doesn’t take account of vague agreements struck in the early twentieth century, and the deregistering of land reform land may have opened up a larger can of worms, as land rights and control in the lowveld sugar areas are renegotiated.

Sugar and power

What this episode once again exposes is that sugar and power are intimately linked. The state and sugar capital have worked together across regimes in Zimbabwe, incorporating outgrowers – white, Mauritian and more recently black – in this bigger project. The order of the estate, with its facilities and regimented control – meant that a colonial style status quo could be preserved long into Independence, no matter how loudly outgrower farmers shouted or local politicians agitated.

When updating investors in December, Tongaat Hullett tried to put a brave face on the scandal, suggesting that they’d turned a corner, everything had been rectified, and that all would be OK. There is a prospect that the company will be listed again on the Joburg exchange today. But, in the last months, the accounting scandal has changed the game in Zimbabwe. When dubious corporate accounting and colonial land politics get mixed up, things get messy. With Tongaat bosses allegedly fiddling the books to get bigger bonuses, the fragility of the long-running arrangement between state, capital, outgrowers and local populations has been seriously tested. Farmers are more vocal about their rights and demand a greater share from the company. And estate land, and perhaps other assets, are now being contested in ways that they haven’t been since MacDougall’s planting of the first sugar in 1937. An accounting scandal has created a whole new politics in the lowveld, which is likely to run and run.

This post was written by Ian Scoones and first appeared on Zimbabweland

 

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The sweet smell of success: the revival of Zimbabwe’s sugar industry

A recent report by the USDA’s Global Agricultural Information Network has shown that Zimbabwe’s sugar industry is rebounding fast on the back of a 6% increase in area cultivated mostly by private outgrowers who are part of the A2 land reform allocations.  Sugar output in 2012/13 is expected to increase by almost 16% to 430000 tonnes from the 372000 tonnes in 2011/12 season, with 160000 tonnes expected to be exported, earning important revenue for the country.

Much of this is happening in the lowveld of Masvingo province, and in the large estates, including Hippo Valley and Mkwasine where we have been studying sugar production on A2 outgrower plots since 2000 (see video here). The Hippo Valley story reflects the wider picture.

Towards the end of last year the Zimbabwe newspapers carried a double page spread reporting the annual results of Hippo Valley Estates Ltd, which are wholly owned by the South African conglomerate Tongaat Hulett. The highlights were: revenue up by 30% at USD90m, with an operating profit of over USD17m. The commentary was upbeat: “The relatively stable operating environment continues to provide a platform for the recovery, growth and development of the sugar industry … The Company remains focused on its goal to achieve full milling capacity utilization of more than 300000 tons annual sugar production over the next three years”.

Although a way off the target in 2012 at just over 160k tons, total deliveries of cane were up 40% on 2011, with 1.349m tons of cane produced by private growers and the company. Private growers’ deliveries were up 55% on the previous year, and an additional 178k tons was delivered by Green Fuel Ltd, the biofuel company linked to the infamous Billy Rautenbach. With the integration of the once separately controlled estates at Triangle and Hippo Valley, the company envisages a total combined capacity of 4.8m tons of cane production, resulting in 600k tons of sugar.

With both company funds and external support, channelled through the EU, there has been considerable investment in cane production on ‘uncontested’ private land (mostly in the Chipwa and Mpapa areas). Private cane growing has expanded dramatically from the relatively small outgrower arrangements that existed in the past. The company report notes that “in the current season, 611 indigenous private cane growers, farming 11138ha and employing 5569 people will supply 772000 tons of cane generating for them US$50 million in revenue”.

The company estimates that private growing could increase substantially on the basis of existing mill capacity. They estimate an additional 661 growers farming 12742 ha could supply 1.4 million tons of cane each year to the Hippo Valley mill, creating employing for 12000 and additional revenue of US$150m. This would amount to a total employment in the sugar industry of 30000, and a revenue of around US$250m. This would surely be the sweet smell of sugar success.

The rebounding of the Zimbabwe sugar industry is attracting attention in the business press in South Africa clearly seeing the investment value for South African companies. Interestingly and typically, the Business Day report failed completely to mention that the growth of production is being driven by a revived partnership between South African capital and new land reform beneficiaries.

But to achieve such ambitious targets, and to continue the impressive growth, will require much new investment, not least in rehabilitating and replanting cane fields, and supply new water resources for newly cleared land. Sugar has long been a central part of Zimbabwe’s agricultural economy, providing stable revenues for the treasury, and earlier when part of ACP agreements, benefiting from a guaranteed and profitable market. Rather overshadowed by the success of the tobacco sector, sugar has not been much in the spotlight, but deserves to be. Just as in tobacco, but in a more organised, estate linked production system, an increasing proportion of production is now coming from outgrower areas allocated as A2 plots as part of the land reform.

As we showed in our book, production in these sites in Hippo Valley in the remote lowveld area of Chiredzi district (and also in Triangle and Mkwasine estates) increased over time from the establishment of A2 plots in 2002. In parallel these farmers accumulated equipment, transport and invested in their land. They also employed considerable amounts of labour. As we documented, they had at that time an uneasy relationship with the core estate. The estate management did not know how to deal with the new outgrowers. They had been used to dealing with a relatively few white and Mauritian outgrowers, but now there were hundreds (around xx plots are registered in Chiredzi district as A2 farms across Hippo Valley and Mkwasine). Many new farmers felt they were being squeezed, with low prices offered, quality controls dubiously applied and transport being supplied late. They thought, perhaps correctly, that the estate management was waiting for them to give up, so the old regime which was easier to manage and control could be reinstated.

From around 2007 when the economy was in freefall sugar production collapsed. Payments being offered in Zimbabwe dollars were meaningless and credit arrangements and cheque payments were wiped out by hyperinflation. Many did indeed give up, ripping out their cane and planting other crops, including maize and tomatoes. But with the stabilisation of the economy through dollarization in 2009, the situation changed. The incentives to reinvest in sugar production returned, and the estate management changed its tune. Now they needed cane desperately so they could break even running the huge mills and vast estates. They belatedly realised that they had to accept private outgrowers, and encouraged them to reengage. And in the period from 2009 they have done on a massive scale as the company figures show.

Now the company is more upbeat about the new outgrower model. It is not as if this is alien to them, as in other operations in the region, this sort of relative smallholder model is dominant. Indeed compared to operations in Zambia and South Africa the new A2 plots are large, average 20-30ha, enough to produce a substantial amount of cane, and some other crops besides. Cane farmers in our study sample in Hippo Valley are much more optimistic now. We are currently doing a resurvey of the small sample we investigated in 2007-08, and I will report back the results in due course.

However there are constraints. The company report alludes to these obliquely mentioning the performance has been “despite the prevailing liquidity and socio-economic challenges”. These are many of course, not least the on-going uncertainty over tenure arrangements in the outgrower areas. Leases have been promised, but only offer letters exist. More significantly there has been a rumbling of discontent among the Shangaan political elite from the area, complaining that ‘outsiders’ got the prime sugar areas. Some influential people have barged others out of their plots, asserting their ‘indigenous’ rights. Most A2 sugar farmers are indeed from outside the area; many are (or were) civil servants, many from the ministry of agriculture. In the scramble for A2 plots through a chaotic and patronage-influenced allocation system, sugar plots were seen as prime targets for those in the know, and they carefully filled their forms and ‘business plans’ to ensure they were successful. By the mid-late 2000s many regretted this move, but now they are much more happy, which is why the land is become contested again.

Questions of finance (or ‘liquidity’) are also significant, as the company notes. It is not cheap to farm sugar: you need equipment, significant amounts of inputs, a lot of labour, irrigation and expensive transport. And you need to replant on a sustainable rotation: crops planted one year may not yield significantly for several years hence. At the farm level cash flow is the perennial challenge, and without effective credit and banking systems in rural Zimbabwe, this is tough without company support. Yet reliance on a single company, just as any contract farming arrangement, puts the grower at a disadvantage in terms of negotiating a good deal. But there are also other pressing financing issues in the sugar sector. The infrastructure was originally built in the 1950s and 60s, and much of it is decrepit and in need of repair. Irrigation canals need constant attention, as do rail lines and mill machinery. Extending farmed areas requires clearing, levelling and laying of canals. None of this is cheap. With profits being scarce in recent years, the company has not invested. External strategic investments financed by the EU under the post ACP regime Adaptation fund are constrained. Euro 45m have been allocated, but only 10m euro have been released to date via the Canelands Trust, a body controlled by the company. Due to sanctions, only areas which were not part of the ‘fast-track’ land reform programme are eligible, meaning that most new private outgrowers – the largest producers today of Zimbabwean sugar – cannot benefit from the industry rehabilitation programme (at least officially – there is course there is considerable leakage and wider investments benefit everyone). These anomalies created by the political stand-off between the EU, and other western donors, and the Zimbabwean government, despite much evidence that sanctions do more harm than good, continue, and are likely to at least until after the next elections.

Meanwhile, and despite these constraints, the sugar industry continues to grow, providing livelihoods, income and employment for many, and much needed revenue for the government exchequer too.

This post was written by Ian Scoones and originally appeared on Zimbabweland

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